A factory located in Incheon, South Korea, captured on May 30, 2016, exemplifies the country’s current economic situation. According to a recent private business survey, South Korea’s factory activity experienced a further decline in August, prolonging its ongoing slump. The purchasing managers index (PMI) for South Korean manufacturers, compiled by S&P Global, dropped to 48.9 in August, down from a 12-month high of 49.4 in July. This sub-50 reading indicates a contraction in activity for the 14th consecutive month, marking the longest downturn in the survey’s history, which dates back to April 2004.
The sub-indexes revealed that new export orders returned to contraction territory after a brief increase in July, resulting in overall orders and output remaining in contraction for 14 and 16 months, respectively. Economic concerns intensified in August due to China’s slowing economic growth, which has been negatively impacting South Korea’s exports. Trevor Balchin, Economics Director at S&P Global Market Intelligence, commented on the PMI data, stating that South Korea’s manufacturing sector is facing continued deterioration in operating conditions. He noted that although the current downturn is less severe than those witnessed during the pandemic and global financial crisis, it still marks the longest in survey history.
In terms of inflation, input prices rebounded after experiencing a decline in July for the first time in over three years. However, output prices continued to decline for the fourth consecutive month due to competitive pressures and client negotiations. Suppliers’ delivery times worsened, with firms reporting shipping delays and shortages of semiconductors, particularly affecting the industry. On a positive note, stocks of finished goods decreased at the fastest rate since December 2021, while backlogs of work declined at a slower pace compared to previous months. Manufacturers’ optimism for future output also increased, reaching the highest level since June 2022, suggesting some hope for a recovery in demand.
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